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SAA to go into urgent business rescue to avoid ‘implosion’

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South African Airways
South African Airways

President Cyril Ramaphosa has instructed the government to urgently put failing state-owned national airline South African Airways (SAA) into a business rescue,  a deputy minister and the parliamentary committee conducting oversight of the airline said on Wednesday.

SAA, which has not made a profit since 2011 and is dependent on government bailouts to remain solvent, suffered a crippling strike last month which forced it to cancel hundreds of flights and pushed it to the brink of collapse.

A deputy minister, who asked not to be named because of the sensitivity of the subject, told Reuters he had received the letter from the secretary of the cabinet Cassius Lubisi earlier on Wednesday.

The letter, which City Press has seen, is addressed to ministers and deputy ministers.

In it Lubisi says that Ramaphosa instructed him to inform all members of the executive “of the urgent need to change the approach adopted by the Cabinet in regard to addressing the dire situation in which SAA finds itself”.

“Cabinet adopted the approach that entailed the restructuring of SAA. However, after discussions with various key stakeholders including potential lender, developments have now necessitated a change of approach to the SAA conundrum,” Lubisi wrote.

According to the letter, the only “viable route” was for SAA to “urgently” go into voluntary business rescue to avoid an “uncontrolled implosion of the national airline”.

Parliament's Standing Committee on Public Accounts (Scopa), which had been due to meet SAA on Thursday, said in a statement its chairperson had also been told about the plan.

“The committee has been informed that this is the only viable route to avoid an uncontrolled implosion of the national airline. Scopa is made to understand that an administrator will move in and the board will effectively not be in charge,” the committee said in a statement.

Ramaphosa’s spokesperson Khusela Diko did not immediately respond to a request for comment.

But she was cited by Times Live saying that the letter was official correspondence to members of the cabinet and deputy ministers.

SAA spokesperson Tlali Tlali could not be reached for comment and public enterprises ministry spokesperson Sam Mkokeli declined to comment.

The DA, meanwhile, issued a statement on Wednesday evening saying the party was pleased that “sense [had] finally prevailed” regarding the airline.

SAA lost more than R10.4 billion in the past two financial years, documents show.

Banks have refused to lend more money to SAA without new state loan guarantees.

Finance Minister Tito Mboweni is trying to halt repeated bailouts to ailing state-owned enterprises like SAA and has refused to sign off on new guarantees.

Some economists have welcomed the government's tougher stance on SAA, saying it could help avert another credit rating downgrade to “junk” status.

Business rescue would hand over control to a specialised prac­ti­tioner who then tries to restore the com­pany in order to avoid liquidation, usually by making substantial cost cuts.

Chapter 6 of the Companies Act allows South African companies in “financial distress” or trading in insolvent circumstances to file for business rescue.

Once a resolution has been adopted, a business rescue practitioner is appointed to reorganise and restructure the business.

Business rescue cannot be initiated if liquidation proceedings have been started against a company.

- Additional reporting by Fin24

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